diff --git a/monai/transforms/inverse.py b/monai/transforms/inverse.py
index f250fdfaf6..16bc01946c 100644
--- a/monai/transforms/inverse.py
+++ b/monai/transforms/inverse.py
@@ -402,11 +402,20 @@ def pop_transform(self, data, key: Hashable = None, check: bool = True):
 
     @contextmanager
     def trace_transform(self, to_trace: bool):
-        """Temporarily set the tracing status of a transform with a context manager."""
+        """Temporarily set the tracing status of a transform.
+
+        The previous tracing state is restored when the context exits normally
+        or because of an exception.
+
+        Args:
+            to_trace: tracing state to use within the context.
+        """
         prev = self.tracing
         self.tracing = to_trace
-        yield
-        self.tracing = prev
+        try:
+            yield
+        finally:
+            self.tracing = prev
 
 
 class InvertibleTransform(TraceableTransform, InvertibleTrait):
diff --git a/tests/transforms/inverse/test_traceable_transform.py b/tests/transforms/inverse/test_traceable_transform.py
index 8ee7c9e62f..cdb3d48595 100644
--- a/tests/transforms/inverse/test_traceable_transform.py
+++ b/tests/transforms/inverse/test_traceable_transform.py
@@ -29,6 +29,18 @@ def pop(self, data):
 
 class TestTraceable(unittest.TestCase):
 
+    def test_trace_transform_restores_state_after_exception(self):
+        """Verify tracing state is restored after an exception."""
+        transform = _TraceTest()
+        transform.tracing = True
+
+        with self.assertRaisesRegex(RuntimeError, "expected failure"):
+            with transform.trace_transform(False):
+                self.assertFalse(transform.tracing)
+                raise RuntimeError("expected failure")
+
+        self.assertTrue(transform.tracing)
+
     def test_default(self):
         expected_key = "_transforms"
         a = _TraceTest()